Question
P4-2 Printware Products, Inc. produces printers for wholesale
distributors. It has just completed packaging an order from Hawes
Company for 450 printers. Before the order is shipped, the
controller wants to compare the unit costs computed under the
company’s new activity-based costing system with the unit costs
computed under its traditional costing system. Printware’s
traditional costing system assigned overhead costs at a rate of 240
percent of direct labor cost.
Data for the Hawes order are as follows: direct materials,
$17,552; purchased parts, $14,856; direct labor hours, 140; and
average direct labor pay rate per hour, $17.
Data for activity-based costing related to processing direct
materials and purchased parts for the Hawes order follow.
Activity Cost Driver Activity Cost Rate Activity Usage
Engineering systems design Engineering hours $ 28 per
engineering hour 18 engineering hours
Setup Number of setups $ 36 per setup 12 setups
Parts production Machine hours $ 37 per machine hour 82
machine hours
Product assembly Assembly hours $ 42 per assembly hour 96
assembly hours
Packaging Number of packages $ 5.60 per package 150 packages
Building occupancy Machine hours $ 10 per machine hour 82
machine hours
Required
If required, round the per unit answers to the nearest cent.
1. Use the traditional costing approach to compute the total
cost and the product unit cost of the Hawes order.
Total cost $
Product unit cost $
-
Using the cost hierarchy, identify each activity as unit level, batch level, product level, or facility level.
Engineering systems design
Setup
Parts production
Product assembly
Packaging
Building occupancy -
Prepare a bill of activities for the activity costs.
Printware Products, Inc.
Bill of Activities
Hawes Order
Activity Activity Cost Rate Cost Driver Level Activity Cost
Unit level
Parts production $ per machine hour machine hours $
Product assembly $ per assembly hour assembly hours
Packaging $ per package packages
Batch level
Setup $ per setup setups
Product level
Engineering systems design $ per engineering hour engineering hours
Facility level
Building occupancy $ per machine hour machine hours
Total activity costs assigned to job $
Total units of job
Activity costs per unit $ -
Use ABC to compute the total cost and product unit cost of the Hawes order.
Cost summary
Direct materials $
Purchased parts
Activity costs
Total cost of order $
Product unit cost $ -
What is the difference between the product unit cost you computed using the traditional approach and the one you computed using ABC?
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